Friday, December 30, 2016

Italy might be spending €6.6 billion or €8.8 billion to rescue Monte dei Paschi, according to two official estimates. The bank plans to issue €15 billion in new bonds in 2017.

The currency crisis in India could turn into a food crisis. The country is not expected to have a normal amount of currency in circulation until late 2017. In the meantime, rural farmers who have money in the bank may not be able to get the cash they need to buy seeds and pay farm laborers for planting. With currency in desperately short supply, bank customers wait in line for days to withdraw $30, the largest cash withdrawal available.

Venezuela will soon be recalling most of its paper money, but that deadline has been extended until January 20. New coins began circulating on Wednesday but could initially be found only in the capital Caracas.

Wednesday, December 28, 2016

A Toshiba writedown on its U.S. nuclear business will be several times the nearly $1 billion charge that analysts expected. The loss is large enough that investors now have reason to wonder about the solvency of the company, a sprawling conglomerate mainly known for its computer memory chips. A bigger concern is what the Toshiba loss might say about the health of the U.S. nuclear sector. A few U.S. nuclear power stations announced shutdowns this year because they were unable to operate without fuel subsidies. You have to wonder if nuclear operators are wealthy enough to pay for the decommissioning of power plants, most of which will reach the end of their useful lives in the next 40 years, along with the long-term storage of the spent nuclear fuel. The public might be left to pay much of the cost of winding down the nuclear experiment at the same time it is paying to clean up hundreds of sites contaminated by coal.

Expect thousands of store closings in the next eight months. Ten-year leases signed in preparation for the 2007 Christmas shopping season expire in 2017. The recession began around December 6, 2007, and many of the store locations that opened that year were never profitable. The list of ten-year lease locations includes more than 500 belonging to just two retail chains, American Eagle Outfitters and Abercrombie & Fitch. Those are two slowly fading chains that surely can’t wait for the chance to close most of their locations, and of course, there are other, smaller examples. At the same time, the risk of tax increases in 2017 will make retailers reluctant to make long-term commitments on stores that show anything less than a consistent healthy profit. Combine these factors and a down 2016 holiday season with the many other uncertainties that retailers face, and the U.S. is likely to end 2017 with a record-setting amount of vacant retail space, exceeding what we saw in 2009.

Friday, December 23, 2016

I heard of local stores opening at 7 a.m. starting on Tuesday. That day the stores were sadly empty in the early morning, but by Wednesday the late Christmas shoppers started to arrive. Since 5 p.m. Wednesday it has been easy to see that it is the holiday shopping season. Today is Friday, many people are taking the day off, and stores have been busy since early this morning. The 50%-off sales mean that purchases don’t count for quite so much revenue this week, but retailers are still happy to see shoppers in the stores. Everything seems to point to a healthy shopping season just slightly below last year’s numbers. Retailers (other than Walmart) held back on their seasonal purchases this year, so they should come out well enough. Struggling apparel and specialty chains that were counting on a blowout Christmas season to lift them over the top, though, may find that this shopping season was not quite enough.

Thursday, December 22, 2016

Ukraine took over its largest bank, ironically named PrivatBank, which was suffering from a $5 billion capital shortfall. Other insolvent banks in Ukraine have been liquidated, but PrivatBank was considered too big to fail.

We were waiting most of the week for news of the fate of Italy’s oldest and third largest bank, Monte dei Paschi. There was no further progress in the final days of the stock sale. A sovereign wealth fund that the bank had hoped would be its anchor investor decided early in the week, perhaps actually last week, that the whole deal was too risky. There did not seem a way to structure a capital arrangement that properly protected the interests of the new investors. Around the same time, the bank acknowledged that it was not as liquid as previously thought, and it could run out of money as soon as April. The bank’s future was in doubt for a few days. The bank faced a December 31 regulatory deadline to raise capital, but the clock ran out on its stock offering at 2 p.m. today. According to published reports, the bank raised a small fraction of the money it needed, between one tenth and one fourth of the €5 billion it was seeking. The board met this afternoon and formally requested government assistance. Then the cabinet met late in the evening and around midnight, approved a state rescue of the bank. Exact terms of the rescue have not been spelled out and it seems that some decisions will be postponed until a new audit of the bank is underway in January. There is a plan to convert the junior bonds held by bank customers into senior bonds in order to protect those investors from large losses at this stage. Government officials have said, though, that all investors would have to take some kind of loss in any government rescue of a bank.

In New York, law enforcement officials say two Platinum Partners hedge funds worth more than $1 billion had been run like a Ponzi scheme since 2012, with secret accounting, phantom assets, and exaggerated earnings. The scheme was uncovered after an officer of the company tried to bribe a government official. Weeks later, Cayman Islands regulators ordered the funds liquidated. Six executives have been arrested and charged after an investigation that included the FBI, the SEC, and others.

Update, Friday:Deutsche Bank will pay $7 billion, and Credit Suisse, $5 billion to settle charges of misrepresenting mortgage-backed securities sold in the United States between 2005 and 2007. For Deutsche Bank, the settlement is larger than the amount the bank had set aside, but the bank has assured investors that it will not need to seek government support as a result of the penalty. A similar case pending against Barclays will apparently be decided in court.

Friday, December 16, 2016

Venezuela recalled 46 percent of its currency. The result is a cash crisis reminiscent of the ongoing crisis in India. The Venezuelan government estimates that half of its national currency is held by speculators overseas, and it says it is attempting to invalidate the overseas currency without having to redeem much of it.

Wells Fargo’s practice of creating ghost accounts for its customers may not have been limited to banking. Prudential Financial on Monday said it had suspended the sale of a specific life insurance policy by Wells Fargo pending an investigation. California insurance regulators will be conducting a formal investigation, the regulators confirmed later on Monday. Regulators worry that the bank opened life insurance policies fraudulently, taking money and personal data from customers’ bank accounts and forging signatures on the insurance applications.

A rescue for Monte dei Paschi will wait until private investors have had every opportunity to fund the bank’s stock offering. The board yesterday extended the stock offering until December 21, but issued an amendment to the prospectus to reflect €2 billion in deposit flight that has occurred in the last two weeks and another €1 billion in deposits expected to be withdrawn before the end of the month. The deposit flight means the €5 billion capital plan, even if investors can somehow be found, may not be enough to meet capital requirements. Given the extent of the problems, some insiders think that a rescue package could come tomorrow rather than next week. On the other hand, action on Monte dei Paschi might have been delayed just to clear the decks for Italy’s largest bank, UniCredit, to shore up its finances by raising €13 billion and cutting 14,000 jobs.

It was a slow year for bank failures in the United States. The FDIC resolved just five failed banks in 2016 with a combined $267 million in deposits. The FDIC budget for 2017 is half of what it was at its peak in 2010, reflecting a steady improvement in the stability and outlook of the banking sector. The NCUA liquidated 11 credit unions that served about 3,000 members, and even that is not as bad as it sounds. Six of the failed credit unions shared the same back office and were resolved on the same day.

DeVry has now settled its false-advertising case. [ https://www.washingtonpost.com/news/grade-point/wp/2016/12/15/devry-agrees-to-100-million-settlement-with-the-ftc/?utm_term=.99c81a96d1eb ] The university had used made-up employment outcome statistics in advertising. It has agreed to use only real statistics in future advertising. In the settlement with the FTC, DeVry will pay $49 million in a penalty and forgive $51 million in outstanding tuition and student loans. The cost of the settlement is not much more than the $49 million penalty, since it would have had difficulty collecting on loans from its unemployed graduates. In sum, the story adds to evidence that the quality of education at for-profit colleges was never as good as people previously thought.

Thursday, December 15, 2016

The weather map doesn’t look favorable for the key final weekend of Christmas shopping, with unpleasant or dangerous weather occurring in most places in the United States between now and Sunday night. In my area most Saturday shopping will be preempted by snow followed by sleet and rain. The weather should be bad news for retailers, but it depends on shoppers’ intentions. There was heavy shopping traffic tonight locally, with shoppers deciding to get to the stores ahead of the storm. You can’t tell from traffic how much people are spending, but at least it seems shoppers are willing to make an extra effort to reach their holiday purchasing goals.

Sunday, December 11, 2016

Don’t look now, but we’ve made it halfway from Cyber Monday to Christmas. What’s going on in retail?

According to the calendar, we are in the traditional early December lull. Not much happens in the stores between Cyber Monday and the last two weekends before Christmas. There is a problem with the calendar this year, though. With Christmas Eve and Christmas falling on a weekend, next weekend is the last shopping weekend before Christmas. People who want to avoid the mad rush at the end of the shopping season should be getting their shopping done this weekend. If this is not happening, it is hardly a surprise.

I haven’t had a chance to see shopping districts first-hand this season, at least not to my usual extent. To fill in the gaps, I’ve asked friends, some who work in retail and some who have just been out shopping, to tell me what they’ve seen. Through yesterday everyone agreed it was is still the early December lull. The lull might not have been quite as deep this year as the last four, but it lasted longer than usual. Today you could see the change. Compared to yesterday, there was a distinct step up in store traffic and longer checkout lines, but still only half the level of a peak shopping day.

After a quiet Black Friday, online orders picked up some of the slack, but now, the balance of the shopping season rests on what people decide to buy next weekend and on their lunch-hour and after-work shopping excursions. If shoppers cast off the cautious mood of the season so far, there is still a chance that the shopping season could recover to the level of last year.

Friday, December 9, 2016

The European Central Bank today turned down a request from Monte dei Paschi for more time to meet capital requirements. With few options for closing its €5 billion capital shortfall, the bank requires decisive action before the ECB’s December 31 deadline. Italy might use the current political vacuum as an opportunity to close or drastically scale back the bank. It is an in-between period in which no prominent politician could be stuck with the blame for the bank’s failure.

The European Commission fined three international banks a combined €0.5 billion for their roles in manipulating the Euribor benchmark between 2005 and 2008.

U.S. banks are overextended in the energy sector, and the problem is not limited to coal mines and oil exploration. Bank of America and SunTrust Bank might end up owning the bankrupt La Paloma natural gas power plant in California after the plant found itself operating at a loss with unusually low energy prices. The power plant filed bankruptcy papers on Tuesday.

The economy of India is in crisis, facing a desperate shortage of cash after a government recall of 85 percent of the country’s currency a month ago. India today is seeing a run on the banks in a form the world has rarely seen, as depositors and holders of recalled currency wait in long lines to compete for the limited supply of new currency. Many workers have not been paid in weeks because there is no currency to pay them with. Small shops, with few shoppers, have furloughed their workers. In theory, the situation should improve over time as new currency is printed and put into circulation. On the other hand, as long as cash remains scarce, the need to hoard cash will discourage spending, and this can form a vicious circle that persists long after the level of cash is restored to a theoretically sufficient quantity. A month in, the lines at banks are no shorter and living conditions in India’s cities and villages continue to deteriorate.

Monday, December 5, 2016

A teardown by Instrumental of the Galaxy Note 7 raises questions about who designed the phone. The often-exploding phone was designed with no headroom for its battery. Some expansion space is required for any chemical battery. Without it, normal heat or minor pressure could cause a catastrophic battery failure even for a well-formed battery. The elimination of the margin of safety to make the phone 0.5 millimeter thinner according to Instrumental’s estimate, or to extend battery life by approximately 1 hour, is, at the very least, a strange decision. At worst, it gives the impression of a corporate decision in which the marketing point of view, wanting an attractive, salable product, overruled the engineering point of view, wanting the product to be safe. If so, it is not just the phone design that was being squeezed. Marketing can overrule engineering only in a company that feels it is having a very difficult time producing a competitive product and selling it at a profit. That is not the state of Samsung from what we’ve seen previously, but the company must be under more financial and market pressure than it appears.

Sunday, December 4, 2016

The whole idea of citizenry might be under attack, but it won’t be all bad news, as we found out late today. Voters in Italy rejected by a decisive margin a mess-up of a constitution rewrite. Around the same time, the U.S. government announced that it had screwed up when deciding to allow an oil pipeline to pass through a lake that supplied drinking water to a community. Both victories came at enormous cost. In Italy, most of the country turned out to vote down the government’s power grab. Millions of people across the United States, even including the MTV television network, participated in one way or another in the stand at Standing Rock. The involvement of so many people could make the decision at Standing Rock a turning point, as some have suggested, but future victories will have to have to fought for with just as much vigor and perhaps over a longer period of time.

While that is going on, even bigger victories, I believe, will result from individual action, “wizardry” as I have called it. In an era when collective action is not enough by itself, we must remember to look for the possibility of individual action that changes not only ourselves but the world around us. The cumulative effect of individual successes day after day could eventually overtake the effects of collective action, but there are a great many things we all have to do for that to happen.

Friday, December 2, 2016

U.S. regulators are concerned about millions of non-performing auto loans. The usually reliable lending segment has become one of the most troubled since last year. I have not yet seen a plausible explanation for why so many drivers in 2014 and 2015 bought SUVs they couldn’t afford.

President-elect Donald Trump’s appointments of Wall Street figures at Treasury and Commerce reflect his long history as a Wall Street insider, but may also hint at worries about a financial crisis within the next two years. The two appointees’ career histories are built on default, bankruptcy, and foreclosure.

The future of Italy’s troubled banks may hinge on a sketchy constitutional amendment that voters will decide on Sunday. Voters are expected to vote no on a package of hastily drafted reforms that would rewrite one third of the constitution to concentrate power in the prime minister’s office, taking away most powers of governors and the senate. The prime minister has said he will resign in the event of a no vote. That could create a power vacuum lasting several months and scuttle bank bailout plans. Financial Times has published a list of 8 Italian banks that are likely to fail in that scenario. Bank stocks have helped drag down stocks generally, with major stock indexes in Italy down 20 percent this year. This week, concern for Italian banks has contributed to a decline in stocks across the euro zone.

Royal Bank of Scotland (RBS) failed a U.K. stress test and says it will need to raise an additional £2 billion in capital. Some of that is expected to come from cost-cutting measures to be announced early next year. The bank is 77% state-owned.

Standard Chartered also did poorly in its stress test. According to published reports, it plans to cut 10 percent of jobs in its big-money business segments.

The NCUA liquidated First African Baptist Church Federal Credit Union, a church-affiliated credit union with 261 members in Sharon Hill, Pennsylvania. Member accounts were transferred to American Heritage Federal Credit Union.

Today’s strong U.S. employment numbers aren’t too surprising given the late start in seasonal retail and logistics hiring this year. With so many seasonal workers starting in November instead of October, it made October look worse and November, better than it really was in terms of employment trends. Regardless, the decline in the unemployment rate is real, and it hints that workers may have an easier time in the job market while employers will have to look harder than they have during the past decade.

Tuesday, November 29, 2016

Those who lack a sense of history will underestimate how hard it is for a White House to avoid scandal. We have had so few White House scandals in the last eight years because it was a top priority, if not the obsession, of the administration to avoid scandal. You only need to look back one year further to see the contrast and get a sense of what is coming. The president-elect has no patience with the need to follow the concepts of ethical behavior, and if the history of his campaign hinted that his administration would be a non-stop parade of scandals, the personnel selection process now confirms that. Cronies, crooks, and conspiracy theorists are on the incoming administration’s A-list. The transition process is being led by business people seeking mainly to make a profit for themselves, while the president-elect has publicly said that conflict-of-interest rules do not apply to the White House. The scandals to follow will be in the news virtually every day for years to come, presenting an ongoing distraction not just for the government, but for the country and the world. While it will be necessary for some of us to keep track of the mischief and criminal goings-on at the White House in the coming years, there will be a decided personal advantage for people who can tune out the news and focus on problem-solving closer to home. It may be a challenging period for those who need to seek publicity for the ventures, but people who can be quietly effective, focusing on a vision and getting things done without much fanfare, may find themselves years ahead of those who must stand and watch the train wreck day after day and year after year.

Monday, November 28, 2016

Cyber Monday is far from over and I certainly don’t want to jinx anyone’s web store, but I am fascinated that I haven’t found any stories of large-scale processing failures from the weekend. For those of us who work close to e-commerce technology, the Cyber Monday tradition has included logging the many capacity-related failures. This may be the first year in which no such failures occurred. Transaction volume is said to be up 10 to 20 percent from last year, so many sites must be experiencing record volume, but it seems they are prepared this time and the platforms are more stable.

Saturday, November 26, 2016

This is not a good period for the idea of citizenry. The collective wisdom and will of the people who make up a country go only so far in the best of times, and in the current era they seem to count for less than usual. The 2016 U.S. presidential election may be taken as a warning sign. The citizenry spoke, and the system chose the runner-up candidate, the one who millions fewer had recommended. If the majority of people fear this system and its actions, it is for good reason. Yet this is the same system that gave us the idea of citizenry. It decides what country each of us belongs to, it chooses the leaders, and it tries to persuade us that by acting collectively we can keep our respective countries out of trouble. This whole bakery was always a front for a business much more seedy, and all the more so now. If citizenry is in a weak state right now, the immediate answer is not to throw more energy into ever more desperation collective and civic actions. Instead, this is a time for a greater emphasis on wizardry. By wizardry, I mean that we need to develop individual skills and use them for small-scale action wherever we find ourselves. The word wizardry serves at the same time as a reminder not to limit our efforts to what the system tells us is possible. The forces that block collective change cannot block individual change. The answers we need will not be televised — television, after all, is another collective medium — but the wizard lives in a larger world, larger even than the “real” world you might have seen on TV. Imagine a world large enough to hold all the answers. Then look around.

Friday, November 25, 2016

Black Friday retail traffic appears to be down from last year, but the story is not as simple as that. From the scant observations and hearsay available to me, Black Friday Eve shopping was up, Black Friday morning traffic was down sharply, and Black Friday afternoon traffic was up from last year. Online shopping was expected to be up sharply but there are not good metrics available yet. Analysts generally expect in-store purchases for Thanksgiving weekend to be down 3 percent from last year. Computing devices seem to be the hottest category, helping to explain the shift to online purchases. Mall apparel shops seem to be suffering the worst, with foot traffic said to be down about 20 percent from last year.

Mood is key, though, and no one seems to have a sense of the shopper’s mood. To retailers, there is a world of difference between a socks-and-sweaters mood and a home-theater mood. Retailers hope that the best wage growth in a decade this year will have shoppers spending more ambitiously, but there is little sign of that. Households wondering about moving to another country or the risk of losing jobs won’t be in a spending mood, and that effect could reduce retail totals even if the overall mood were positive. To show how complicated it is to summarize the mood of the shopper, here are summaries from five real people from today:

Worked in an office all day. Too tired to go out anywhere.

Spent the day visiting relatives. Surprised to get to the end of the day without having set foot in a store.

Visited seven stores. Bought a reliable brand of jeans and a winter jacket.

It was going to take the biggest Black Friday ever to make up for sluggish sales earlier in November, and no one so far is suggesting that has happened. On the other hand, retail traffic was strong enough to say that this Christmas shopping season won’t be the debacle that some had feared.

Wednesday, November 23, 2016

Looking at U.S. holiday-season retail, it is hard to separate the effects of the decline of Black Friday, a jaded post-election public, and consumer time pressure. What is clear already is that this holiday shopping season will be different.

Retailers didn’t even try to draw consumers away from the distractions of the political season. The words “Black Friday” did not appear in my mailbox until last Thursday and have popped up in my email only twice, with one mention on Monday and one on Tuesday. This is a striking turnaround from just a few years ago when it seemed that Black Friday encompassed the entire month of November. With so much hype along with a few violent deaths, it is no wonder that Black Friday lost its allure. The change became obvious last year with a stark dropoff in in-store sales on Black Friday.

The meaning of Black Friday has changed anyway. It was the symbolic start of Christmas shopping if you look back to the 1990s, but now is seen by more shoppers as the finale of the season. Most purchases are made throughout the month of November. Any purchases these shoppers cannot make by Black Friday will be placed online no later than Cyber Monday.

This year, though, all bets are off. Retailers are telling me that they have not yet seen detectable levels of holiday shopping traffic this season, and in my own visits to stores I haven’t seen it either. With a washout in the first half of the holiday shopping season, it would take a record-breaking second half to bring things in line with retailer expectations. Yet the almost complete absence of Black Friday hype hints that that won’t happen. The shopper sentiment I am hearing can be summed up as procrastination, a feeling along the lines of “Don’t remind me.” None of the shoppers I talk to have made any shopping plans at all, for Black Friday or otherwise.

If that feeling abruptly changes during the Thanksgiving holiday, we could see the biggest Black Friday ever. If not, Christmas shopping this year might consist of shoppers shopping on their lunch hours and taking home just enough socks, sweaters, and games to get by. After we have a chance to see Black Friday retail traffic, we may get a clearer idea of where this shopping season is heading.

Friday, November 18, 2016

As the week began, Wells Fargo was basking in the lack of attention after the presidential election had pushed the bank and its ghost-account scandal out of the headlines. The smug feeling lasted only a few days, though, because then the bank had to announce operational results that included the shocking figure of a 44 percent decline in account openings compared to the year before. Part of this decline may be attributed to the hit that the bank’s reputation has taken, but most of it must be due to the changes in the bank’s marketing practices. Now that the bank is not so aggressive in pushing new accounts on its customers, it turns out the customers don’t really want new accounts. The ghost accounts, created without customer knowledge or permission, were just one face of a much larger problem. Even when the bank’s customers agreed to open a new account, half of the time, it was an account they neither wanted nor had any use for. The bank was not serving its customers so much as turning them into bit players in its twisted numbers chase. With the fire hose turned off, Wells Fargo customers are more than happy to step out of that game. In a way, the saga is a depressing commentary on how much consumers are willing to put up with in a system that gives them so few options.

Could the new Congress pass a bill forcing Wall Street out of the banking business? It seems possible. There is considerable support among liberals in both houses for a legal and financial wall separating investment banking from deposit accounts. With the incoming administration also supporting that idea and Wall Street throwing much of its support behind Democrats in the latest election, it seems possible that Republicans too could be persuaded to support a bill that would have the effect of scaling back Wall Street’s territory.

A currency recall in India is a fiasco, with the government ordering a surprise recall of bills accounting for around 90 percent of cash in circulation. The recalled bills can no longer legally be spent, yet the government has printed only enough replacement notes to cover around 3 percent of the recalled money. In a country where 98 percent of retail transactions are paid in cash, consumers and businesses alike are unable to do their shopping. ATMs don’t work with the new bills, even if the banks could get them. It is expected to take four months to convert all the ATMs and supply banks with enough currency to complete the replacement of the recalled currency.

Thursday, November 17, 2016

Every November I write the first draft of a new novel as a participant in National Novel Writing Month. After this month’s election the novels in progress took on extra weight, as if completing them would be proof that our national culture is not dead yet. The quality of writing in my own novel seemed to suffer in the days immediately after the election, but I kept writing and the story kept taking shape, and that is the measure of success for a novel at the first draft stage. I haven’t heard of any participating novel writer going through the depression that affected so many people after the election. There were not even any political rants from novelists, or if there were, they somehow did not reach me. And it certainly is not that novel writers are Trump supporters. Just as Trump despises college graduates, which most novel writers are, Trump in known to despise everyone who works with words and ideas, having characterized such people on more than a dozen occasions as criminals and threats to the world. Given the political chasm between Trump and novel writers, I think there may be lessons to be learned from novelists’ relative immunity from the political winds. There is some spiritual protection in having a clear purpose, and even the arbitrary goal of completing a novel first draft in one calendar month may be purpose enough. There is also a degree of political protection in putting forth ideas in fictional form. This has been seen through the ages, but most famously when Galileo was not put to death for suggesting that Earth moved around the sun, in part because he made that suggestion in the form of dramatic dialog, a stage play without a stage. At times like this, there is an undeniable appeal in being able to slip away into another world where events are protected from the cultural crisis of the present. How bad can the world really be if my novel has a happy ending? Writing fiction requires the writer to take a broad view of what is possible, and in its way, that is more powerful than the narrow view of the possible that conventional politics seems to require.

Wednesday, November 16, 2016

It was one week ago when we woke to news of a harsh new America after the presidential election results. For many of us, the time since the election has seemed like a much longer period of time, and it can be a surprise to look back and realize that all the changes we have just seen have taken place in only one week. This perception of time expansion is a real advantage — it translates to real time to do things for those of us who may now feel we are racing to keep up with the flow of events. Millions of us have made millions of changes in the last week. One simple example of this is found in the ACLU’s new Twitter followers, a 25 percent increase in one week. I could write out a long list of other, more substantive changes I have seen, but I don’t want to distract from the key point: when you have a strong sense of purpose, even if it results from a crisis, you get more time to take action. In times like this, when there are important things to do, hold on to that sense of purpose and you will magnify your impact.

Monday, November 14, 2016

Donald Trump knows so little about what it means to be president that Barack Obama is taking a substantial amount of time to show him the ropes. Trump is said to have been surprised to learn that the president must hire the White House staff, for example. Details like that will be important for him to know if he wants to be ready to respond when events take place in the world, which of course, happens every day. Obama is a strong believer in continuity, so the effort to tutor Trump on White House operations fits with his priorities in office. We can hope that a little of his sensibilities rub off on Trump during their hours working together.

This does not mean there is much chance of Trump mellowing as he takes office. The names floated for key positions range from white supremacists to senile yes-men. Trump supporters would expect a Trump administration to be a high-stakes gamble of the sort that the country has never seen before, and so far, that is indeed what it is shaping up to be.

Sunday, November 13, 2016

I continue to hear reactions to the election, and based on what I know of American history, the emotional impact of the election outcome is something not seen since the election of Abraham Lincoln. At that time it was the plantation owners who were convinced the world was coming to an end. It is worth remembering that within their view of the world, their feeling was correct. Well before the end of the presidential term, all the slaves had walked away. The events of that period permanently changed both the form and the self-image of the United States, and it appears more likely than not that something equally complex and consequential will happen in the next five years or so. Plopped into the middle of this tumultuous transition we will have the first U.S. president ever to spend his days watching television. If that seems a bizarre agenda for a president now, imagine how it will seem in a few years when the number of TV viewers has declined by another 25 million. The president will not just be abdicating his responsibilities by wasting his time on television. He will also have lost touch with the direction of U.S. culture. The ancient legend of Nero fiddling comes to mind. The reason this is important to note is that, in the important transitions and crises coming up, the United States will be essentially leaderless. We can expect tirades and racist platitudes from the TV president but no reality-based problem-solving. Solutions will come from all directions, I believe, but few, if any, will come from the White House.

Saturday, November 12, 2016

Last night I attended a gathering of shamans, and even though shamans are not so numerous in the United States their reaction may represent that of much of the country. The election was regarded as so horrible that people could not refer to it directly. We all agreed that we had to do something to build connection and strengthen community even though there was no obvious course of action that anyone could mention. The biggest topic mentioned was the swastikas. They have been popping up since election night — spray-painted on buildings and streets, stuffed into mailboxes, taped to cars and other things, sometimes accompanied by an approximation of evangelical Christian talking points. There is no question what the swastikas are supposed to mean: that someone intends that whole classes of people will be removed from the community. From where we stand, it seems that that is what 45 percent of our fellow citizens voted for. That thought, of course, hurts. Trump as a candidate had no platform in the normal sense but had a long list of people to blame and spoke of little else. People who voted for Trump, then, must have voted for blame. There is other evidence of this, such as the people who, since the election, are mysteriously distant and angry at everyone and everything. They seem to have bought into Trump’s exhortation to find someone to blame. Blame, of course, is not a solution, but it is a problem. How do you reach people who are wrapped up in blame, and who see you (along with almost everyone in town) as someone to blame? The short-term answer, I am afraid, is that you cannot. Besides the practical difficulties, there is an ethical issue of free will involved. When people have chosen blame, who are we to unchoose it for them? In our community-building efforts, we have to start with the people we can reach. How to build a stable cohesive community again is a puzzle, but I think it is perhaps like a sudoku puzzle, in which each connection you can find is a success to be celebrated — it simplifies the problem that remains by an order of magnitude.

Friday, November 11, 2016

The Donald Trump election victory is good news and bad news for Wall Street. It is good news in the sense that Trump is a Wall Street insider and has signaled an intention to pepper his cabinet with Wall Street insiders. The Wall Street insiders will be well-positioned to engineer the next Wall Street bailout. It is bad news in the sense that Trump has a negative view of international commerce. All of the Wall Street banks are fundamentally international in character, which means they are, by their nature, at odds with the policies of the incoming administration. Will they be able to adapt to a new set of isolationist policies and new restrictions on what business they can conduct? Are they prepared for the extended recession and loan losses that could result from the price shocks and job losses of an isolationist trade policy? The new regime will, at minimum, be a culture shock on Wall Street. In the worst case, Wall Street could lose the better part of its business.

The fate of Deutsche Bank is a special question. The German banking giant has signaled an intention to keep its U.S. operations relatively intact, but will it be financially able to do so in the light of the new taxes and restrictions that are on the way?

Cyber attacks on banks are becoming more severe. Last weekend the U.K.’s Tesco Bank suffered £2.5 million in fake online transactions. Late in the week, two major Russian banks, Sberbank and Alfa Bank, were hit by unusually large DDoS attacks. Attackers typically use DDoS attacks against banks to disguise false transactions, but there were no apparent transaction losses in the Russian attacks.

Thursday, November 10, 2016

There have been protests in dozens of major cities, especially last night, after the presidential election outcome. One benefit of the protests is the message of solidarity with the many people left feeling shocked, depressed, dismayed, rejected, or fearful after the election outcome. It is one thing to hear that you are not alone. It is another to see thousands of people in the street.

If you sense danger in the situation, it is not your imagination. You did not imagine Trump suggesting that protesters might be shot and killed or that writers could be locked up if they disagreed. You did not imagine the campaign statements about women who were victims of violence, saying that the victims should “get over it” and in some cases, change jobs. Nor did you imagine the millions of votes for Trump by people who agreed with these sentiments. It might seem like a bad dream, but all this really happened. If you woke up yesterday feeling like your country is against you for wanting to do the most simple things like get up and go to work, many of the facts justify that feeling.

It is important, though, not to fall into the pattern of viewing the world or the country as essentially hostile or the related trap of thinking that your own efforts don’t count for anything. Seeing other people’s efforts that align with your own helps you find hope in your own efforts.

And then there is my own story. My recent work depends on consumers feeling comfortable with making major purchases. With uncertainty in the air and a recession on the way, by next year I could find myself essentially unemployed along with most of the people I work with.

The election is just another in a long series of blows to the U.S. middle class, but there are also those lke me who will suffer individual losses as a result of the election outcome. There are people who will watch a family member die after health coverage is canceled. People are afraid they will see their parents deported. Gay couples are afraid their marriages will be canceled. People have reported handwritten death threats. If you search online or ask around there are millions of stories of people in trouble in the aftermath of this election. Yours is not the only one. In truth, everyone has lost something of importance, even if many of us do not realize it yet.

Wednesday, November 9, 2016

I am not up at 4 a.m. just because yesterday’s election signals a dangerous new era in the United States — but since I am up, allow me to run through a few quick observations about what happened and the situation we find ourselves in.

Clinton was a candidate first and foremost. Hillary Clinton came across as a woman who had spent her whole life preparing to be a candidate for U.S. president. It was not as convincing to voters as it might have been had she put the same effort into preparing to be a president.

Obama’s party-building efforts failed — in the short run. I am not sure any U.S. president ever made party-building a higher priority than Obama did, but the result of his effort has been to take the Democratic Party from a position of controlling the presidency and both houses of Congress to falling just short in all three areas.

Trump is as far from having a mandate as U.S. politics allows. When I checked a few hours ago, Trump’s share of the popular vote was estimated to be slightly over 45 percent. If accurate, that would mean his share of the vote was less than that of the losing presidential candidate in the four previous elections. It would also be less than that of Clinton, though not by much. At the same time, there are other special factors that suggest a lack of a mandate. Trump did not spell out any coherent, credible policy positions. Some of the people voting for Trump were Republican voters who hoped that a Trump victory, and the assumed incompetent administration that would follow, would lead to a quick collapse the Republican Party. Trump got a late boost from an unorthodox and almost certainly illegal intervention in the election by the FBI. Looking back, it is safe to say that Trump could not have been elected without the benefit of these last two factors.

This could be the last hurrah for the Republican Party. Did you see the millennial-voter version of the electoral map? If you only counted votes of voters under 40, Trump’s share of the vote would have been about 5 percent and he would have won about 5 states. The age of the average Republican voter is around 63. Four years from now these same voters would be 67 years old except that some of them will have died of the diseases of old age before then. The advanced age of Republican voters costs the party at least 2 points per 4 years. When you are declining from a base around 45 percent, that is fairly grim.

American democracy is broken. More voters voted for Democrats for House, Senate, and President, yet the system delivered control in each case to Republicans.

There is a risk of a stock market crash. Investors shocked by events often need to sell a few specific stocks and bonds immediately regardless of loss. If enough companies are affected and the price moves are large enough, this can lead to investors generally feeling that they need to sell quickly.

Businesses are feeling uncertain. There was a sudden pause in hiring when the FBI intervened in the election a week ago. Hiring will continue to be slow until businesses feel comfortable that they know what the new regime will be. Given Trump’s reticence and incoherence on policy matters, it might be a couple of years before that happens. One interpretation of Trump’s trade policies would be expected to reduce U.S. economic output by 10 percent, so businesses have a reason to be cautious about new investments of any kind.

Austerity is back. Households that were starting to spend more freely again after nine years of being financially squeezed will feel some of the same uncertainty that is affecting investors, businesses, and the job market, and will go back to the very tight style of spending that so many of us learned in 2007. This could lead to sharply lower economic growth all by itself.

Friday, November 4, 2016

Italy’s government and central bank are moving to eliminate the country’s cooperative banks. New rules virtually require holding companies to have at least €1 billion in capital. If all of the country’s cooperative banks merged, the new size requirement would seemingly result in just three cooperative banks in the country. All would be in the same financial distress that currently affects Italy’s larger banks. At that point, the government could look for a pretext to eliminate the cooperative banks entirely, most likely by merging them into another bank.

Pennsylvania is the latest state to suspend Wells Fargo from state business. Investigations into the bank’s ghost-account scandal have expanded, with evidence suggesting that the bank’s fraudulent practices extended into its brokerage and that the bank retaliated against former employees who had objected to the fraud scheme. The bank confirms that the SEC is investigating the bank’s public statements about its marketing practices, many of which are now known to be false. The bank’s auditor, KPMG, is also facing an investigation. The auditor knew of the pattern of fraud but concluded it was immaterial, and regulators are asking if that was a reasonable conclusion.

Thursday, November 3, 2016

The plan for Britain’s exit from the European Union is something that Parliament will have to vote on. That was the view of legal scholars and political analysts all along, and now it is the official opinion of the British court with jurisdiction on the question. Looking at it one way, the involvement of Parliament in a question of policy makes perfect sense, but looking at it another way, the requirement greatly complicates the British exit from the EU. Political opinion is not so unified that a simple question on an EU exit will pass. The Prime Minister will have to present a general plan of how the EU exit will go. The trouble with that, of course, is that no matter what plan Britain goes to the EU with, there is no realistic chance of it passing intact. The near-failure of a trade agreement with Canada just a few days ago shows how hard it is to get all of Europe to agree on anything. Nevertheless Britain must take its best guess on the outline of its future trade arrangements with the EU and make its best case for that approach. That should be the same plan that the Prime Minister presents to her own country. Regardless of the difficulties, the plan has to be written out and agreed to, in general terms if not in all the specifics, before the formal paperwork and diplomacy can get started. With so much riding on the initial plan document, it has to be researched in detail and written thoughtfully. It is a tall order. It could take months to do, perhaps even a year. Britain’s EU exit will be delayed. But it is British law and especially EU law that mandate this approach, and the chances of getting Europe to bend its laws just to make things easier for Britain at this point are, for all practical purposes, nonexistent.

Sunday, October 30, 2016

There is plenty of hand-wringing this weekend about what’s wrong with ESPN after reports that it it is having its worst-ever month, losing 621,000 subscribers between October and November. It’s a decline in sports as entertainment, according to Clay Travis at Outkick the Coverage, who points out that the decline in viewers and subscription fees could put not just the cable channel in a financially untenable situation, but also many of the team sports leagues that it broadcasts. There is plenty of separate evidence for the decline of sports television this year. The NFL saw an unexplained swoon in ratings this fall, and the month before, the summer Olympics had its biggest-ever decline in TV audience.

But ESPN is just one of the most successful TV channels on cable. The decline in cable is a trend hitting all cable channels. Tyler Durden writing at ZeroHedge puts the blame on HBO, which launched its online HBO Now subscription model less than a year, taking 1 million customers away from cable. The numbers don’t quite add up when you look closer. ESPN has lost 2 million subscribers in the last year, so the 1 million HBO Now subscribers so far don’t come close to accounting for the decline in cable and ESPN. Nevertheless there is something to this theory. The move by HBO and others to offer content on the Internet must have helped break the habit of premium cable subscriptions. TV subscriptions, like banking relationships, tend to be very slow to change. Five years can pass by between “I’m really paying too much for this” and the actions that actually terminate the subscription. Many people don’t get around to canceling until they realize they are moving, forcing a change whether they are ready or not. When a service has this much inertia, it is a healthy approximation to say that customers who finally break their habit are lost forever. In other words, after the 2 million subscribers lost this year, there will be at least as many more next year, and there is probably nothing the TV industry can do in the short run to turn the trend around.

It was just last year that television executives were saying publicly that they weren’t sure the declining TV audience was real. Now there is no question. Raw subscriber and viewer numbers are declining at a rate of more than 1 percent per year. Television’s influence peaked around 2004, after which its growth was slower than the rate of population growth. Now there is talk of cord cutters getting their television programming over the Internet. What television executives won’t tell you is that more than half of people who cancel television subscriptions don’t replace them with anything. They canceled because they stopped watching.

The decline in ESPN is ultimately just the decline in television. Television will continue its decline, and we can only hope that the process can go smoothly, but there is plenty of potential for trouble along the way. The tension in the financial arrangements behind cable channels are stretched to the breaking point as it is, with cable channels regularly cutting off content to cable systems as a negotiating tactic.

So what could happen to ESPN? With its audience shrinking, it now knows it overpaid for its current bundle of live sports broadcast rights. It will have to bid less the next time around. Every other broadcaster too will have to set their sites lower when budgeting for content. The sports leagues and any other business that depends on television for the biggest part of revenue will have to make adjustments of their own.

Suppose, however, the situation is worse than it looks, and ESPN loses so many viewers next year that it reaches the point where it cannot meet its licensing payment obligations. Money already budgeted by major sports leagues, promised to players, stadium owners, bondholders, and the like, won’t be there to make those payments. Could there be a large-scale lockout? Could teams or leagues go bankrupt? Might some football, baseball, basketball, or hockey franchises simply shut down? Obviously, that scenario can be avoided. I would think all the worst effects can be avoided if the parties involved have already started the process of tightening their budgets to avoid a crunch down the road.

Saturday, October 29, 2016

The White House has taken a stand against the overuse of noncompetition agreements as a condition of employment. I think people may not realize how widespread noncompetition agreements are. Many businesses apply them to all employees regardless of whether the employee has access to sensitive information about the company’s processes and strategies. A noncompetition clause typically prevents a worker from taking a job with a direct competitor, but often they also prevent workers from taking jobs with the company’s clients, prospective clients, and competitors of clients and potential clients. In extreme cases they may extend to any company at all that hires workers to do the same kind of work or that has any customers in common. A single sentence in a noncompetition clause can make it virtually impossible for a worker to take a job in an entire industry. When you consider how many workers are covered by noncompetition agreements, roughly one fourth of all workers in the United States, they are a significant aggregate cause of unemployment. Workers who lose jobs may have to change careers and learn new skills before they can take a new job. The primary purpose of a noncompetition agreement is exactly what the exactly what the term suggests, to interfere with competition. However, they are also used to intimidate employees by making it harder for them for them to leave their jobs. Both purposes create problems for the economy as a whole, and so the rules surrounding noncompetition agreements ought to be more strict than they are.

Friday, October 28, 2016

Settled: Barclays and UBS settled with U.S. bond investors in a Libor rate rigging case, pending court approval. Terms were not disclosed.

Cuts:Monte dei Paschi will close 500 branches and eliminate 2,600 jobs. The bank’s stock rallied on the restructuring news, then crashed the next day and was briefly suspended from trading. The stock partially recovered and stabilized when trading resumed, but analysts expect this kind of extreme trading volatility to continue.

Large banks in general reported healthy profits from bond trading in the latest quarter.

Wednesday, October 26, 2016

Volkswagen will buy back diesel cars sold in the U.S. The settlement has court approval and the buybacks will begin in a few weeks. The cost of the settlement is described as $14.7 billion, and most of that is the cost of buying back cars. The settlement also allows for modifications to bring cars into compliance with air pollution standards, though to date no such repairs exist. The actual costs to Volkswagen could be less because it is hard to predict how many cars it will have to buy back. On the other hand, the settlement covers only vehicles with a 2-liter diesel engine. The less common 3-liter engine will likely be covered in a subsequent action at additional expense. It is surely the end of Volkswagen’s U.S. diesel offerings. The company has neither the engineering designs nor the credibility to sell diesel engines to the U.S. market. It will continue to sell cars with gasoline engines. At the same time, it will speed up its efforts to offer zero-emission vehicles. It has few alternatives. The past failings on emissions limit its ability to sell fuel-burning engines but shouldn’t affect the credibility of future zero-emission designs.

Tuesday, October 25, 2016

The distributed denial of service (DDoS) attack on Friday that slowed one corner of the Internet was a mystery at the time but is well understood a few days later. It was the work of a small (if unidentified) criminal group. The attack worked mainly by reprogramming Internet-connected devices. The heart of the attack botnet consisted of webcams made by Hangzhou Xiongmai Technology. Virtually all Internet devices made by this company were compromised.

The company is blaming a password problem, but there is a deeper issue. Devices like cameras should not be capable of being reprogrammed in this way. There is no need for a webcam to incorporate a general-purpose computer, but in particular, a webcam has no need for the ability to disguise its identity — an essential component of an effective DDoS.

In general, the proposed Internet of Things (IoT) will be possible only after these fundamental security issues can be sorted out. It doesn’t take much imagination to consider what a camera or microphone might do if it is capable of being reprogrammed over the network, but think beyond that. Reprogrammed lights could self-destruct in a relatively short time, leaving people in the dark. A coffee maker could be reprogrammed to explode and start a building fire, a danger that looms larger if you imagine this happening in a million apartments in the same city on the same night. A loudspeaker reprogrammed could plant subliminal suggestions — or it could make the loudest sound you can imagine, causing hearing loss and possibly even earthquake-like structural damage.

Excluding these unintended capabilities is simple enough in theory. It involves pulling out the general-purpose computer built into the devices, substituting a special-purpose controller that has an intentionally limited set of capabilities chosen with safety in mind. Yes, that requires more design work, but the current approach of relying on good programming practices, firewalls, and passwords clearly is not enough.

Friday, October 21, 2016

Cuts: Deutsche Bank is preparing more U.S. cuts but will maintain its Wall Street presence. HSBC will close its private bank in Monaco. The Wall Street Journal is offering a buyout package to all news employees worldwide and hopes to reduce staffing levels by about one sixth by next month.

Wells Fargo has lost its Better Business Bureau accreditation, the result of the bank’s $5 million ghost-account fraud against consumers and a surge in complaints in recent years. Meanwhile, the California attorney general is looking into allegations that the bank forged customer signatures.

Thursday, October 20, 2016

Christmas-season jobs may last for a shorter time this year. For a few years there was a trend for large companies to try to employ seasonal workers for nearly the entire fourth quarter. It rarely worked out that way, with work slowing in December and layoffs starting two weeks before Christmas. This time the largest seasonal employers plan to hire slightly more temporary workers, but for a shorter time. Many workers will have their jobs for only one month, from mid November to mid December. One reason for the shortened season is the worry that shoppers distracted by the presidential election may not start their Christmas shopping until November 11, the Friday after the election. The smaller number of jobs that last for a quarter will mostly be out of reach for walk-ons. Those positions will be reserved for workers returning from previous years.

Wednesday, October 19, 2016

Three months ago, Starbucks drew up a plan to pay its employees more while giving them more health care choices. The benefit changes went into effect this month, and Starbucks employees are now seeing the raises reflected in their paychecks.

I talked to several Starbucks workers, and not one is taking home more money. Everyone is getting less. Those who opt for traditional health coverage, now called “gold,” are paying around $5,000 a year, or about $200 out of each paycheck, to cover their share of the insurance premiums. It is a high price when you consider the size of a retail paycheck. Most employees, to save money, selected high-deductible plans. The premiums are similar to last year’s, but a plan year deductible around $2,000 means that, in a good year, insurance won’t cover anything. Employees are paying for all health care out of pocket. That’s hard to do, of course, so many have signed up for health savings accounts to cover the gap. That’s the main reason the paychecks are smaller. Setting aside just $1,000 per year of before-tax income means your take-home pay is $28 less. Recognizing the impact, Starbucks provided across-the-board raises — its first in seven years, apparently. The raises are large enough to take much of the sting out of the situation, but with actual paychecks smaller than before, workers did not come out feeling like they’d gotten a raise.

Starbucks said its youngest, healthiest workers — those whose annual medical costs are zero — might do better with the change, but no one I talked to knew of a worker who fit that pattern. Many Starbucks workers are relatively healthy and in their 20s, but nearly all, it seems, have a continuing medical condition that requires monitoring and a prescription drug. The picture of the young worker who never sees a doctor has become a myth, it seems.

Baristas may not have quit Starbucks all at once this month, but they’re not happy. These are the gist of the reactions I heard: “I just have to take better care of my health because I can’t afford to see a doctor anymore.” “I’ll have to get another job.” “I don’t see why we can’t form a union.”

This is unfamiliar territory for Starbucks, which a decade ago had possibly the most loyal work force in the retail space. A seven-year wage freeze followed by a drastic cut in benefits has changed that, and now Starbucks is lagging a sector where many employers are making plans for a $15 minimum wage. The company knows it has more adjustments ahead and is looking at more ways to automate its store operations so it can get by with fewer workers. It is also considering a plan to close many of its locations. One thing is clear: as the labor market tightens, Starbucks can’t continue to operate the way it has.

The problems Starbucks faces are an inevitable result of the public policy decisions to tie health coverage to employment. The unfortunate result is that health care has become the largest wage tax ever, while many of the supposedly covered employees are shut out of the system again. Starbucks and its workers might be the ones affected this month, but in time, every employer will face some version of the problem. I don’t believe there will be a solution without real health care reform, and that won’t be coming soon in the current political climate. Eventually, though, health coverage for medical conditions not resulting from workplace injuries will have to be separated from employment. The chronic troubles of the labor market and health coverage are hard enough to address separately. Keeping these two vexing problems chained together just makes matters worse. Every solution you can think of creates a new problem somewhere else.

Friday, October 14, 2016

Wells Fargo fired its CEO, but the move came with a surprisingly generous severance package. An insider was appointed as the new CEO. There are no signs of the bank adjusting its strategy or business model. Consumers are abandoning the troubled bank, with checking accounts declining the fastest. Nevertheless, the bank’s profit fell just 9 percent from the year before.

For years RBS systematically undermined its U.K. business customers according to a new report. In an intentional strategy, the bank abruptly raised interest rates on some 16,000 potentially vulnerable businesses in order to force them into restructuring. The bank would cut off credit, delay collecting deposits, or impose surprise fees to hurt a business’s cash position. Bank employees were paid bonuses for finding creative ways to squeeze a business. The bank then gained billions of pounds from restructuring fees while its customers, in many cases, went bankrupt.

Cuts: Deutsche Bank formalized its hiring freeze. It is said to be preparing to cut an additional 10,000 jobs and is looking for ways to accelerate its restructuring plans. Germany says it has ruled out any possibility of investing in the bank as part of a rescue package. Lloyd’s outlined 1,200 layoffs of its own. There are rumors of cuts at multiple banks in London and Singapore.

Arrested: The Singapore operations manager of Swiss bank Falcon Private Bank. Singapore has also revoked the bank’s license and started proceedings against former managers at the bank. The case involves money laundering of around $4 billion in funds connected to 1MDB.

Indicted: Brazil’s former president Lula da Silva and ten others face money laundering and conspiracy charges related to bribes used to arrange financing for an engineering company project in Angola. Prosecutors believe Lula was paid speaking fees for speeches he never delivered.

Settled:Monte dei Paschi will forfeit €10 million and pay a fine of €600,000 for false reporting of transactions and related crimes. The executives and managers involved are no longer with the bank.

Wednesday, October 12, 2016

When I looked at the world this morning, it seemed unexpectedly quiet after the turmoil and disaster of the preceding week. It was nice not to have a hurricane tearing the East Coast and not to discover a new political scandal or financial crisis that had popped up overnight. Peace must be in the gaps between the hurricanes.

But wait. Looking at the world from a slightly different angle, there was no gap between hurricanes. Hurricane Matthew had left so much rainfall in North Carolina that the rivers would not return to normal levels for a month. In some ways the flooding in eastern Canada, heavily influenced by the same hurricane, was worse. Cleanup in Haiti and Cuba had barely begun because of the difficulties of reaching the more remote areas. Some people might starve! At the same moment, Hurricane Nicole looked like it had a moderate chance of strengthening to the level of a major hurricane before a direct hit on Bermuda that would start tonight. Meanwhile the unraveling of one of the largest political parties in U.S. history seemed, if anything, to be accelerating, while new signs of financial trouble could be seen in Europe and the nearest parts of Asia. Where was the gap between disasters?

Yet I did feel peaceful in comparison to previous days. Peace is subjective, after all; it is where you are or where you can find it. And peace is a blessing even when the circumstances of the larger world don’t seem to substantiate the feeling. Any moment in which anyone finds peace is valid. In that moment and at that place it is not a fake or delusional peace, but the kind of peace that matters, the kind of peace that has the potential to expand and extend, to spread to other people and places. Perhaps I could say that peace occurs in the imaginary gaps between the hurricanes. That is not quite right either, because while the gaps might not be explainable in the larger view of the material world, peace is real wherever anyone finds it. When you are there, there is no need to justify the feeling of peace and certainly no need to debunk it. Rather, notice it and make use of it while it lasts — because that might not be very long.

Monday, October 10, 2016

It is a management rule so trite that even I am familiar with it: after you discover that you have created a problem for your customers, be very careful that you don’t make the problem bigger with your solution. Obviously, Samsung knows the importance of this, and they have just learned that they violated this rule with the Galaxy Note 7. When first issued a month ago, this much-anticipated phone exploded and caught fire more often than you would expect. After investigating, Samsung halted sales in one country, then worldwide. It asked consumers to return the phones for replacement, followed shortly by a formal product recall. Unfortunately, the replacement phones exploded and caught fire nearly as often as the originals. Problem not solved. Tonight Samsung is asking consumers using the Galaxy Note 7 to immediately turn it off and return it. It’s a drastic step for Samsung, but clearly better than leaving a potentially incendiary hand-held device in people’s hands. The lithium batteries in the phones did not explode often — only a few per day had this problem — but that is often enough that a consensus of people would agree that it’s more than the expected risk of using a consumer electronics device. As with the lottery, people tend to put more focus on the rare events that happen than on the ones that don’t. The man who burned his hands is unlikely to forget what phone did that. He might forget every other phone but not that one. No consumer product brand wants to be known as the product that blows up in your face regardless of the number of occurrences. Nor does Samsung want to be remembered as the smoking phone that delayed a flight from taking off, never mind that that has only happened once so far. Scrapping the Note 7 and going back to do more designing and testing is the right approach, and Samsung realizes it will have to do more than that to restore trust in its brand and operations.

Sunday, October 9, 2016

As predicted, I continue to be distracted by Post-Tropical Cyclone Matthew, with flooding rains continuing through the night affecting everyone I know in North Carolina. There, the floodwaters may not drain away completely for weeks. My own hurricane preparations turned out not to be needed. The rain and breezes weren’t much here in Pennsylvania and are winding down tonight but the storm’s combined impact on the mainland was a disaster pretty much in line with predictions. There is a coordinated effort by a few lunatics of the alt-right to discredit the hurricane despite at least 18 mainland deaths, miles of highway washed away, and early estimates of $6 billion in losses covered by insurance — and that is on top of the historic losses already suffered on the islands. Those who argue “almost no one” died are showing they lack an understanding of both human decency and the magnitude of the disaster.

There were indeed news releases in the news hole of late Friday during the hurricane, but they were not the kind I was expecting. In the first shocking report, a giant European bank revealed it has, in round numbers, $50 trillion in derivatives on its books. That’s a huge sum, equal to several years of euro zone GDP. The bank insists the situation is not so bad because, according to its internal analysis, the real risk exposure is “only” double the total value of the bank. I am confident this story will not get lost, but will be picked up tomorrow and discussed all week long and probably longer than that.

In the United States the bombshell was a TV interview from a few years back revealing that a presidential candidate aspires to sexual assault as a lifestyle. For this story too there is zero chance that it is lost in the shuffle. Indeed, the consensus among political observers is that this year’s presidential race is over as a result of the tape and the bungled response. As if to underscore that point, state polls released today show the race was already out of reach before Friday. The larger question now is whether the crisis will be the end of the political party involved. The United States has not lost a major political party in more than a century so this is a big question indeed. It would be impossible to lose sight of, no matter the timing of the news. Saturday Night Live, for its part, has ensured that the immediate political story gets the attention it deserves by making it the subject of an opening segment that is one for the history books. With much of the suspense taken out of the election, it doesn’t look like the remaining presidential debates can approach the record audience of the first one.

In each case, the news came out late Friday during a damaging hurricane accompanied by widespread power outages in the hope of minimizing the impact of the story. News editors cooperated initially by burying the lead, with headlines about accounting questions and choice of words, respectively. No doubt that effort was effective to some extent, but despite it all, the stories are out.

Friday, October 7, 2016

Cuts: Bailed-out banking giant ING announced plans to reduce its work force by 12 percent or 7,000 jobs. Half of the cuts are in Belgium and most of the rest are in the Netherlands. Workers in both countries announced strikes to protest the scale of the cuts. The bank says it will improve its digital presence and eliminate jobs through automation. Deutsche Bank has increased its ongoing job cuts in Germany by 1,000 after talks with labor authorities.

Settled: RBS will pay $1.1 billion to NCUA to settle claims related to mortgage-backed securities sold by RBS to two corporate credit unions. The securities were nearly worthless and the purchases contributed to the failure of both credit unions.

Indicted: A court in Milan, Italy, entered charges against executives and managers at Monte dei Paschi and Deutsche Bank along with a few traders at Nomura Holdings, for creating false transactions that boosted the value of Monte dei Paschi. The bank was forced to restate five years of financial statements after the falsifications came to light, and prosecutors spent three years investigating the transactions.

A flash crash in the British pound last night reduced the value of the currency by 9 percent for about one minute. The crash is far from fully explained, but it followed coordinated EU comments about exacting an unspecified “price” from the U.K. as retribution for the country‘s exit from the trading bloc. That is empty talk, as any such action would cost the EU more than the U.K. and no EU country or political body will be willing to fund such a program. Analysts say flash crashes are becoming more frequent and are not simply the result of program trading.

Wednesday, October 5, 2016

Early fall is the season for struggling summer attractions to close down, and this fall, the going-out-of-business list finally includes the Trump Taj Mahal casino in Atlantic City. It closes its doors Monday. In hindsight, the oversized casino would have done better to close in 2007 or 2008. Somehow it managed to defy gravity for eight years, drawing in new funding from a series of hapless investors, all the while losing money every non-summer week. In the end it was losing $1 million per week and the acrimony surrounding the closing just shows that there was no realistic prospect of keeping the casino going.

Losing money year after year is also the story at most of the few dozen golf courses closing at the end of the summer. Golf continues its slow fade, but often the problem is simply too many courses in the same place. A New York ski resort that added on two golf courses in a bid for summer visitors just decided that one was plenty. Resort, municipal, and university golf courses can lose money, but only up to a point. As participation declines, golf courses eventually have to close. That is the story in Jackson, Mississippi, where budget cuts forced the closing of the city golf course. Obviously, the city budget wouldn’t have been a factor if the course had drawn enough customers to cover its operating costs.

Tuesday, October 4, 2016

Another week brings another tropical system to watch in the western North Atlantic — but this time it’s serious. Hurricane Matthew is surely already causing severe flooding and other damage in Haiti and Cuba, with the Bahamas to follow. After that, there is a chance that it could paint the U.S. coastline with a week of heavy rain from Florida to Massachusetts.

You hardly ever see a hurricane track parallel to the coast for such a long distance, but Matthew is a threat to do that. Currently there is a hurricane warning in Florida, but people in ten states should be getting ready or at least keeping track.

Even before the storm arrives, the approaching danger poses a distraction. For the next week or longer, fewer people will be paying attention to the presidential election, the new fall TV season, holiday-season hiring, and other major current initiatives. Conversely, companies may release bad news on Friday afternoon in the middle of the storm in the hope that their troubles don’t get so much attention.

If the major river and coastal flooding materializes as forecast in 8 or more states, that will be an economic setback on a national scale. The damage and inconvenience would be large enough, for example, to skew the 4th-quarter GDP numbers.

Sunday, October 2, 2016

One reason to be skeptical of electric vehicles is that no one has any history of making them in large numbers. Now, though, Tesla Motors is close to laying that concern to rest. Tesla recently passed the rate of 100,000 units per year. Just as important, in a few more weeks the automaker may have more than a week of inventory. It will be the first time in its history that Tesla will have vehicles in stock. Previously, Tesla had long delays in delivering orders. The delays and accompanying uncertainty made most potential customers hesitate.

Batteries are the one remaining obstacle. For electric cars to be more than a niche product at the current price of gasoline, the price and durability of batteries will have to improve by another notch or two. That seems inevitable, though it’s always hard to predict the timing of breakthroughs in materials engineering. As the manufacturing cost of batteries falls, the demand for electric cars will increase. Though there will surely be periods of shortages as component supplies get out of sync, the electric car sector looks ready to expand to meet the growing demand.

Friday, September 30, 2016

Cuts:Commerzbank is cutting 9,600 jobs or 20 percent of its staff, a much larger move than the 2,000 job cuts rumored a week ago. The bank, the second largest in Germany, is suspending its dividend and revamping operations as loan demand falls sharply in Germany.

Reports of a bailout of the country’s largest bank are greatly exaggerated according to Germany and Deutsche Bank. The bank, facing a financial shortfall of at least €4 billion, has not requested assistance and the government is looking only at hypothetical scenarios. Published bailout scenarios appear to directly violate EU laws, suggesting that government officials may be looking only at the comparative budget impact of a bailout or bank failure.

Wells Fargo has launched an internal investigation into its marketing practices, a first step toward badly needed changes in policy and personnel. Perhaps alarmed at the lack of movement at the bank, states and cities are re-examining their accounts at Wells Fargo. The state of California has announced it will suspend most of its business with the bank for the next 12 months. Among other moves, the state is asking the bank to launch an anonymous ethics reporting hotline. That suggestion comes after revelations that the bank’s current ethics hotline, though supposedly anonymous, identifies employees who report problems and has them fired. The U.S. Department of Labor says it is looking into possible whistleblower violations in the bank’s labor practices. Workers who were fired after reporting violations have sued the bank. The bank seems surprised by the scale of the reaction to its marketing fraud and only yesterday decided to end the sales quota incentive program at the heart of the scheme. The incentives remain in effect today but are being discontinued soon, possibly tomorrow.

Wednesday, September 28, 2016

The horse meat scandal of four years ago faded with surprisingly little known about what happened. All over Europe and in the United States, horse meat was being sold as beef and other forms of meat, usually in a mixture of meat in processed food. There were months of disclosures in Europe as retailers, factories, and authorities looked into the matter. It is anyone’s guess how much mislabeled horse meat was sold in the United States because the USDA denied that such a thing was possible and never looked into it.

Hundreds of people in at least a dozen countries had to have been involved in the misselling of horse meat, but it is only now that three people (yes, only three) have been indicted. At The Guardian:

Monday, September 26, 2016

I’m not recommending that anyone watch the presidential debate tonight, nor the other debates to follow. It can’t be good for the soul to listen to a politician point fingers, particularly when inevitably some of the fingers are pointed in your direction. However, I realize that millions of people will watch the debate, and if that number includes you, how do you protect yourself from the damaging effects of the radioactive rhetoric?

There are many things you can do, but the simple thing I can recommend for many people is a cup of tea. Why tea? Tea is widely held to be comforting and familiar, and at the same time, it is made by the efforts of people who work outside the imaginary line that defines the borders of the United States. When you drink tea, you are drinking a beverage that the protectionist candidate in tonight’s debate would have you no longer drink simply because it is not domestically produced. Tea is grown in and imported from countries like, well, China. Imagine how smug and defiant you can feel listening to a hothead talking about bringing China to its knees while you sip on a beverage that comes from that country. Reflect on your kinship with the men of the American Revolution and the famous Boston Tea Party — you are drinking your cup of tea months before Congress has any chance of enacting the proposed new tax that could double the price of tea along with the other goods of the world. If you are letting your thoughts stretch that far, you might as well take that next step and think about the way drinking tea demonstrates one way in which you are the same as anyone else who ever drank tea, or coffee or wine, or water or any other beverage. We all need to drink something when we can because it is our nature, reflecting the way we are all descendants of the same ocean.

When you start to think of it this way, drinking a cup of tea during a political debate can be a revolutionary act. It connects you not just to a physical product of the larger world, but also to the more abstract world of possibilities that gave rise to the physical product. That may serve as a reminder of something that no politician on a stage will ever tell you — that the changes that matter don’t come from institutions of power like those that a candidate represents, but from almost everywhere else but. Think about that long enough and you might even decide not to watch the rest of the debate.

Friday, September 23, 2016

Cuts: Commerzbank, the second largest bank in Germany, is planning job cuts. The board next week will consider a plan to cut 2,000 jobs as the bank scales back its offerings to business customers. Deutsche Bank is making plans to close its loss-leader Australian wealth management business. It will serve Australia and New Zealand clients from Singapore.

CNN spoke to employees of giant banks and what they found could be trouble for the industry. Current and former Wells Fargo employees said the bank routinely identified and fired workers who reported improper marketing practices to the bank’s supposedly anonymous ethics hotline. Employees of other major banks said the marketing practices at Wells Fargo are not far removed from the rest of the industry.

Wells Fargo’s CEO has resigned his Fed position, obviously needing to focus on the continuing crisis at Wells Fargo.

The SocGen trader convicted of forgery for his high-risk trading won’t owe €4.9 billion in damages to the bank. The bank’s own management failures were the primary cause of the subsequent losses, an appeals court ruled in reducing the damages amount to €1 million.

Tonight’s bank failure was Allied Bank, with five locations in the general area of Fort Smith, Arkansas. The failed bank had $65 million in deposits. After state regulators closed the bank, the FDIC turned the deposits and assets over to almost-local competitor Today’s Bank. Allied Bank was founded in 1902 in Mulberry and was known as Bank of Mulberry before 2002. The bank’s holding company filed for bankruptcy reorganization in 2014, but was ordered liquidated in 2015. The bank had a high level of bad loans but also had higher than average expenses, making it more difficult to recover from financial setbacks. This is only the fifth bank failure of the year.

Thursday, September 22, 2016

Yahoo says 500 million accounts had user data stolen in 2014. In terms of the number of accounts, this may be the biggest data theft ever. On the other hand, it is easier to acquire a Yahoo account than almost any other Internet account, so the magnitude of the problem is not as big as the raw numbers would suggest. I ended up with at least five Yahoo accounts over the years, mostly through Yahoo’s acquisition of other services, though I had the good fortune to close all of them before the massive data breach in 2014. Yahoo itself closed hundreds of millions of inactive accounts in what, in retrospect, looks like a sensible precaution.

Hashed passwords were among the data stolen, so if you had a Yahoo password in 2014 and are still using the same password, you should change that password soon. If you use the same password anywhere else, change it there too. If you have several Yahoo accounts that you have kept open even though you no longer use them, consider whether you will be more secure if you close them now. It was only because I closed my Yahoo accounts years ago that I don’t have to worry about the current data breach.

The Yahoo data theft is believed to be the work of a national government, though Yahoo either doesn’t know or can’t say what country was involved. Multiple countries in recent years have been collecting user passwords wherever they can find them because half of Internet users reuse passwords at multiple sites, potentially giving spies access to highly sensitive information. The systematic theft of passwords is one of the reasons why it is safer to use a new password at every domain where you have an account.

Sunday, September 18, 2016

A week ago, for-profit college ITT Technical Institute closed. At the time it appeared the company had simply run out of money. Now that is confirmed. ITT Technical Institute is in bankruptcy.

The bankruptcy is as problematic as the shutdown. In bankruptcy the college will sell off its assets and pay as much as it can to its creditors. The largest group of creditors are the roughly 30,000 students who paid for fall courses that the college wasn’t able to deliver. This group includes, at a guess, 5,000 students who planned to start their studies this fall. They paid their tuition, bought their textbooks, in many cases quit their jobs, only to have the rug pulled out from under them just as their studies were supposed to get going. At the same time almost the only substantial assets in the bankruptcy are the loans due from students, including this new group of students and also including at least 10,000 graduates who can’t get jobs and have no means of repaying their college loans. One hopes the bankruptcy court has a keen sense of fairness about this and doesn’t use money from students who were tricked into handing over their life savings and then some to pay off Wall Street investors. Even if that goes well, we will be left with investors trying to collect student loans from graduates who are unemployed, unqualified, and broke — not to mention what happens to the students who were a few courses short of graduating. It paints an unflattering picture of what American higher education has turned into.

In filing for bankruptcy, ITT Technical Institute says it went broke because it had fewer new students this fall. Total enrollment fell only slightly, but new students had a disproportionate impact on the college’s finances. In this respect, the college may be seen as the equivalent of a Ponzi scheme. It depended on a steady stream of new customers to meet its obligations to its existing customers. If that were not the case, it could have continued to serve its existing customer base using the money its existing customers were providing.

The business plan of higher education is not a mystery. Students pay tuition, and that money goes to pay the hourly wages for instructors and the rent for the classroom. It’s a highly scalable business model — it works for schools that have ten students and for those that have 100,000. ITT Technical Institute charged some of the highest tuition rates in the world. That it could not simply scale back by 5 percent and keep operating, even for a few days, shows that its finances did not follow the normal financial model of a school. It was using borrowed money to pay its operating costs while using its revenue to defend its ability to borrow more. That’s technically not a Ponzi scheme but doesn’t differ financially from one in any important respect.

When a Ponzi scheme is discovered, the only solution is to shut it down as soon as possible. The longer it operates, the greater the financial pain when it eventually collapses. I believe the same logic applies to ITT Technical Institute, and perhaps this was the logic that the board of directors applied. As long as its continued operation depended on proving it can expand its customer base, there was no reason to hope it could wind down gently. Had it succeeded in enrolling more students this year only to collapse next year, the cost of the collapse would have been that much greater. Conversely, had it been shut down ten years ago, the cost of the shutdown would have been smaller.

If the closure came 10 or 20 years later than it ideally should have, tallying the cost of the delay is only a theoretical objection. In practice, institutions never stop the day they start doing more harm than good. Instead, that decision comes long after, and the delay in this case is no different. When a board of directors says it’s time to shut down a corporation, it is almost always too late to second-guess the decision.

Friday, September 16, 2016

Deutsche Bank worried publicly about how much it might have to pay to settle deceptive U.S. marketing of mortgage-backed securities. The bank’s worried tone cast a shadow over global stock markets.

A fire suppression system caused extensive damage in ING Bulgaria’s main data center last Saturday, effectively shutting the bank down for most of the day. It was supposed to be a routine test and the bank was caught off guard by the damage, but engineers say the inert gases released by the system can create sounds loud enough to destroy hard disk drives if they are set up in metal racks.

After Wells Fargo got caught padding its numbers with ghost accounts created behind customers’ backs, it will have to explain itself to its customers, the SEC, the Senate and House, and possibly in federal court. The bank has suspended its cross-selling scripts at call centers in order to avoid adding further upset to customers calling to close accounts they never knew existed. However, underlining the bank’s difficulties in coming to grips with the situation, nothing has changed at branches, where insane cross-selling quotas remain in place and staff members who fall short are still being fired. More details of the bank’s actions might come out in a class-action suit filed by account holders seeking compensation under identity theft laws.

UniCredit, the largest bank in Italy, is negotiating with buyers over the sale of operating units and other assets. The bank made a poor impression in recent stress tests and now hopes to raise enough capital to avoid intervention by regulators.

Fifth Third is closing 44 branches in addition to 130 branch and facility closings previously announced.

Tuesday, September 13, 2016

Brazil took the obvious next step against corruption last night, expelling former Speaker Eduardo Cunha from Congress not for bribery, but for the simpler charge of failing to declare Swiss bank accounts that appear to hold the proceeds of bribes. The outcome is the same: Cunha is no longer in public office and faces an eight-year ban from any government position. The timing shows how hesitant the country is to address corruption. The expulsion was put off almost until the last possible moment, and Cunha now goes off to face the first of what could be dozens of criminal charges. Cunha has said all along that if expelled, he was prepared to testify against half of Congress in the ongoing corruption probe, and it appears he will now have that opportunity.

Sunday, September 11, 2016

Years ago I predicted this would be the month that Arctic Ocean would have so little ice that ordinary cargo ships could pass through the middle of it. That didn’t happen, but this summer’s melting shows that favorable weather won’t save the sea ice from the effects of global warming.

Arctic sea ice is a fraction of what it was when detailed record-keeping started in 1979, and that is what led me to predict a substantially ice-free late summer. At the same time, it seemed there was reason to hope that a run of good luck with the weather might allow Arctic ice to hang on in a semblance of its current form for another decade. That would require quiet spring weather, clouds in June and July, and light winds so that there is hardly any outflow. That last point seemed the most important. Surely, with less and less ice as the years go by, it would get harder and harder for winds to push the ice out of the Arctic and into the Atlantic.

This year was a good test of that idea. April through mid-August provided almost the best weather patterns we could imagine for the ice. Outflow virtually stopped from April until the end of August. Ice nevertheless tracked near record lows all year long. It is now lower than the September lows of every year but 2012. The answer, then, is that near-ideal summer weather might prevent a new record low for Arctic ice, but it won’t stop the downward trend.

How is this possible? Global temperatures seem the most likely culprit. July was the warmest month on record globally, and for the last three years, more months than not have set new high temperature records for the world. Though we can’t pin down how it happens, it seems that some of the warmth is making its way from the Pacific Ocean to the Arctic Ocean. Some observers think the Atlantic Ocean must be warmer than before and transporting more heat into the areas where it borders on the Arctic Ocean. There aren’t thermometers all over the Arctic region, so these are just guesses, but they seem more likely than not.

The weaker, more fragmented Arctic ice is also a problem. So far this month, winds have been pushing ice not into the Atlantic, but into Canada. But instead of jamming up in the narrow straits as in past years, the ice is flowing through freely and melting before it reaches the mainland. In floes mostly smaller than a kilometer, the broken ice looks and acts like a fluid when observed from satellites. When the wind blows in other directions, ice may end up moving in the general direction of the Bering Strait and the Pacific Ocean. This area too used to be a safe haven where ice could survive for years, but on today’s map, only a few rapidly shrinking ice islands remain. As one observer put it, no matter which way the wind blows, it is bad for the ice.

The only weather that will save the ice in summer, it seems, is light winds and lots of clouds, but that’s a lot to ask for. Those are conditions that result from low pressure, but the pressure can’t get so low that it creates a storm and the winds start blowing. Persistent conditions of medium-low pressure don’t happen often. Nevertheless, those were the weather conditions of June and July this summer in the central Arctic, and the ice kept melting. Good weather is not enough. Only a cooler planet will save the Arctic sea ice from its downward spiral, and realistically, there are no plans to stop the current global warming trend.

If I were on an ordinary cargo ship crossing the Arctic Ocean, I wouldn’t want to see ice. I would want an ice-free passage 100 kilometers wide to travel through. But to a ship with a reinforced hull, thin ice is almost the same as open water. Early in the summer, two U.S. military ships on research missions approached the North Pole without any special difficulty — and that was when the ice was twice as thick as it is now. An Arctic-class cargo ship probably could pass through the weakest ice of the central Arctic, roughly along the 45° and 165° East meridians. I hope no ship is attempting this, though. The Northwest Passage and Northern Sea Route have both been open for cargo for the past month. Weeks ago, a large cruise ship traversed the Northwest Passage without incident, the first time that’s been attempted. With two routes offering logistical support, who would be the first to attempt a shortcut through an unsupported route that is almost 50 percent ice?

Still, this month is the first time that the phrase “probably possible” has been applied to the Central Arctic Route. That puts the Central Arctic Route barely a decade behind the Northern Sea Route, a route that the cargo industry now takes for granted. If the world keeps warming, it may take little more than a mild winter and a sunny summer to open the Central Arctic Route to shipping.